Choice of location as a success factor: “We only build where we are welcome”

What applies to hotels also applies to senior housing: the location is important. Acceptance by residents depends on the location of a new building. Heike Piasecki, division manager at the consulting and analysis company Bulwiengesa, and Oliver Radünz, managing director of the Hamburg investor HBB, explain what needs to be considered when choosing a location. In many places in Germany, inner-city building land is scarce and expensive. How do you still find suitable and affordable plots for nursing homes? Oliver Radünz: HBB always builds in central locations, preferably in large cities or at least in central locations. There, building land is indeed scarce and the plots are expensive. In addition, we need relatively large plots for a senior care home with our planning ideas. Strictly speaking, it is less about who we are addressing than about knowing exactly what you want in advance. We drive down every street in the cities, look closely at the neighborhoods, the competition. You have to understand a city before you act. Of course, we also approach the cities, the institutional owners, and rarely real estate agents. But we find most of the properties ourselves. I estimate that we found 70 percent of our properties through our own acquisition, by going around the cities.

Do municipalities not recognize the advantages of special properties such as nursing homes? Such as the creation of new, secure jobs?

Radünz: We experience this very differently. Many municipalities think of kindergartens or schools when they think of social infrastructure. In addition, some municipalities recognise the need for inpatient care, but are not very
But there is also a different way of allocating land. The social services department of the state capital of Munich has formulated a clear requirement profile for the two plots of land on which we have built our houses and clearly communicated the need for inpatient care places. The plots of land were then put out to tender for this type of use. Otherwise, it would not have been possible to build senior care homes in Munich given the prevailing land prices. This is how the state capital has managed to build two modern senior care homes in the middle of Munich.

What does the ideal location for a nursing home have to offer?

Radünz: An urban, socially and urbanistically stable location. The vacant lot in an established residential area. The proximity to attractive infrastructure in urban life and good transport links. But above all, the feeling that one feels comfortable and safe at the location. And what analysis grid do you use as a market researcher when choosing a location?

Heike Piasecki: In our expert assessment, we always look at a micro-location from three perspectives: residents, relatives and visitors, and employees. For residents and their relatives, it is important that the environment is suitable for seniors. What does that mean? Embedding in an urban structure as much as possible with green spaces, infrastructure and public transport connections within walking distance. We also look at what crossing aids are available on roads, such as lowered curbs or traffic lights. For relatives, but above all for employees, accessibility by private motorized transport and also by public transport is an important location criterion.

Are there exclusion criteria?

Radünz: A lot! We turn down most of the plots. We don't like a commercial environment or disruptive businesses. The residential area, the district, the neighborhood should also be characterized by a population for whom our offer of local amenities could be of interest. In this respect, new development areas for young families are generally ruled out. We are looking for the typical vacant lot in an established residential area.

Piasecki: Let me break down the term location into micro-location, the immediate surroundings of the project site, and macro-location, the city or district in which the nursing home is to be built. We advise investors against a micro-location if, for example, the pollution levels there are classified as very high. This can be the case due to noise, but also due to permanent odors. Inadequate transport links are also a negative criterion. A macro-location may not be suitable for the construction of a nursing home if the demand potential is classified as unsustainable both on the demand side and due to a very high level of competition.

What other analysis factors come into play?

Radünz: We have a whole catalogue for this. In addition to the socio-economic framework data used by many experts and institutes, we are particularly interested in the structure of a city and the relevant district, as well as the quality and orientation of our competitors and their location. For us, a location must have the potential to still be a very good location in 30 years. After we have thoroughly checked all the criteria, gut feeling is the deciding factor. So far, we have done well with this. And at what point in the selection of a location does Bulwiengesa contribute its data?

Piasecki: In most cases, we provide our consulting services as part of the purchase assessments. The assessments cover several areas: In the analysis of the macro-location, characteristic indicators of the city are assessed. This includes the evaluation of the traffic situation, the infrastructure, the job market and the image. I have already explained the evaluation characteristics of a micro-location. When dealing with the demand level, socio-demographic data such as population development, the age structure of people over 65, care statistics or income development are worked out in the defined study area. It is important here that the perspective is always directed towards the forecast of the values, because we are talking about long-term real estate investments. In the supply analysis, we assess the competition: How is it structurally structured? What location criteria does it have? What are the cost and utilization structures and who are the operators? In the demand calculation, the findings from the demand and supply analysis are then brought together and the future demand potential for the planned facility is derived.

Given this background, is it generally easier to implement a project in large cities than in smaller towns?

Radünz: No, that is not the case. It all depends on the individual will of a city, its politics and administration, and on the open-mindedness and professional confidence of the people involved. We build from the Kiel Fjord to the Austrian border. We have had first-class experience in very large cities in terms of constructiveness and in our interest in finding a good solution for the city. In Munich, the cooperation with the city was exemplary - although there were very concrete and sometimes contradictory ideas about issues. But in good discussions, we always found solutions very quickly. The same applies to many of our construction projects in Berlin.

Which partners do you need as an investor to be successful in a location in the long term?

Radünz: As a property owner and investor, we only build in cities where we are welcome. For the construction project, we endeavour to work with regional, efficient construction companies so that the construction work remains in the region. We and the operator also strive to work with the cities, existing social and health facilities such as clinics, with doctors and social and societal networks. This can lead to very
different cooperations or common interests.

How do you maintain these networks locally?

Radünz: You should do this sustainably and credibly. We develop our premium locations for years - during this time we often build up a wide range of intensive contacts in a city. We then pass these on to our operator Domicil when construction begins and at the latest when it is completed. However, since we are the property owner, we as HBB also have ongoing - sometimes intensive - contact with the contacts in politics and administration for all of our properties - and also often with our neighbors. In addition, over the years a relationship of trust develops with many of the people you deal with. This continues even after the actual work has been completed.

In a recent analysis, Bulwiengesa predicts a need for 372.000 places in inpatient care by 2024. How did you arrive at this figure?

Piasecki: The significant demographic-related need arises from the comparison of the forecast of those in need of inpatient care, which is driven by the sharp increase in future seniors of the baby boomer generation, and the supply, which is assumed to be a continuation of current construction activity in inpatient care. It should be noted here that these forecasts suffer from limitations, as the key determining factors were largely kept constant for the sake of simplification. The number of people in need of care can change simply through changes in definitions made by the legislature. The problem of the nursing staff required to run these facilities is not taken into account in all the calculations.

And given exploding costs, supply bottlenecks and global crises, how do you assess the chances that this demand gap can be closed?

Piasecki: Negative. Even without the current crisis elements mentioned, the analysis of planning and construction activity over the past two to three years shows that the gap in demand cannot be closed at the current pace. In addition to the issues of land availability and financing, the increasing legal regulations as well as the federal structures and legislation do not encourage construction.

 

Source: CARE INVEST, Hanover